Indicators of Financial Vulnerability: A Household Level Study

Abstract

This paper compares two indicators of household vulnerability using the Bank of Italy's Survey on Household Income and Wealth (2008-2014). According to the first indicator, a household is considered vulnerable if its debt service-to-income ratio exceeds 30 per cent and its income is below the median of the population. According to the second, a household is defined vulnerable if the sum of its income and liquid financial assets is not sufficient to cover debt payments and basic living costs for four months. While providing similar information on the proportion of households deemed vulnerable, the two indicators capture different aspects of the sector's financial fragility: vulnerable households according to the first indicator have, on average, higher income, liquid assets and debt than those identified by the second indicator. Moreover, while the first indicator shows a lower correlation with payment arrears, its simplicity, timeliness and less arbitrary components make it better suited for cross-country comparisons.

An empirical analysis on household financial vulnerability in India: exploring the role of financial knowledge, impulsivity and money management skills

“…Many studies have referred "financial vulnerability" as the inability of an individual to repay their financial debt (Jappelli et al, 2008;Kim et al, 2016;Poh and Sabri, 2017). Under financial shock, the households with a high debtservice-to-income ratio are expected to be more vulnerable than the ones with a lesser value (Michelangeli and Rampazzi, 2016). Ba nbuła et al (2015) found that households with a debtservice-to-income ratio of more than a threshold value of 40% are vulnerable.…”

“…, 2016; Poh and Sabri, 2017). Under financial shock, the households with a high debt-service-to-income ratio are expected to be more vulnerable than the ones with a lesser value (Michelangeli and Rampazzi, 2016). Bańbuła et al.…”

The Relationship between Household Wealth and Financial Vulnerability in the Post-communist Countries of the Euro Area

“…Obtained results confirmed the statistically significant impact of all considered variables. Increasing vulnerability measured by the debt service-to-income ratio (Keese, 2012;Michelangeli and Rampazzi, 2016) showed the highest positive effect on household wealth during all three reference periods, with its maximum impact in 2010. Although raising household debt threatened the financial stability of households, it helped to ensure and accumulate assets.…”

“…Our investigation focused on analysing the relationship between household wealth and financial vulnerability. Hence, the level of household net wealth was defined as a dependent variable, and debt payments represented the household's financial vulnerability compared to income as an explanatory variable (Keese, 2012;Michelangeli and Rampazzi, 2016). Based on the literature review (e.g.…”

The magic and misdirection of public service loan forgiveness in the United States

“…Once screened into the study, participants were invited to participate in particular focus groups based on their debt‐to‐income ratio—in this case, conceptualized as having either a higher or lower level of education debt relative to their pre‐tax household income. Understanding this ratio was considered important given previous research connecting education borrowers' debt levels, indicators of wellbeing, and overall financial vulnerability (Hojman et al., 2016; Michelangeli & Rampazzi, 2016).…”